When Depression Economics Prevails, Prudence is Folly

Depression Economics Returns
By PAUL KRUGMAN, NYT - 14 Nov 08

The economic news, in case you haven’t noticed, keeps getting worse. Bad as it is, however, I don’t expect another Great Depression. In fact, we probably won’t see the unemployment rate match its post-Depression peak of 10.7 percent, reached in 1982 (although I wish I was sure about that).

We are already, however, well into the realm of what I call depression economics. By that I mean a state of affairs like that of the 1930s in which the usual tools of economic policy — above all, the Federal Reserve’s ability to pump up the economy by cutting interest rates — have lost all traction. When depression economics prevails, the usual rules of economic policy no longer apply: virtue becomes vice, caution is risky and prudence is folly.

To see what I’m talking about, consider the implications of the latest piece of terrible economic news: Thursday’s report on new claims for unemployment insurance, which have now passed the half-million mark. Bad as this report was, viewed in isolation it might not seem catastrophic. After all, it was in the same ballpark as numbers reached during the 2001 recession and the 1990-1991 recession, both of which ended up being relatively mild by historical standards (although in each case it took a long time before the job market recovered).

But on both of these earlier occasions the standard policy response to a weak economy — a cut in the federal funds rate, the interest rate most directly affected by Fed policy — was still available. Today, it isn’t: the effective federal funds rate (as opposed to the official target, which for technical reasons has become meaningless) has averaged less than 0.3 percent in recent days. Basically, there’s nothing left to cut.

And with no possibility of further interest rate cuts, there’s nothing to stop the economy’s downward momentum. Rising unemployment will lead to further cuts in consumer spending, which Best Buy warned this week has already suffered a “seismic” decline. Weak consumer spending will lead to cutbacks in business investment plans. And the weakening economy will lead to more job cuts, provoking a further cycle of contraction.

To pull us out of this downward spiral, the federal government will have to provide economic stimulus in the form of higher spending and greater aid to those in distress — and the stimulus plan won’t come soon enough or be strong enough unless politicians and economic officials are able to transcend several conventional prejudices.

One of these prejudices is the fear of red ink. In normal times, it’s good to worry about the budget deficit — and fiscal responsibility is a virtue we’ll need to relearn as soon as this crisis is past. When depression economics prevails, however, this virtue becomes a vice. F.D.R.’s premature attempt to balance the budget in 1937 almost destroyed the New Deal.

Another prejudice is the belief that policy should move cautiously. In normal times, this makes sense: you shouldn’t make big changes in policy until it’s clear they’re needed. Under current conditions, however, caution is risky, because big changes for the worse are already happening, and any delay in acting raises the chance of a deeper economic disaster. The policy response should be as well-crafted as possible, but time is of the essence.

Finally, in normal times modesty and prudence in policy goals are good things. Under current conditions, however, it’s much better to err on the side of doing too much than on the side of doing too little. The risk, if the stimulus plan turns out to be more than needed, is that the economy might overheat, leading to inflation — but the Federal Reserve can always head off that threat by raising interest rates. On the other hand, if the stimulus plan is too small there’s nothing the Fed can do to make up for the shortfall. So when depression economics prevails, prudence is folly.

What does all this say about economic policy in the near future? The Obama administration will almost certainly take office in the face of an economy looking even worse than it does now. Indeed, Goldman Sachs predicts that the unemployment rate, currently at 6.5 percent, will reach 8.5 percent by the end of next year.
All indications are that the new administration will offer a major stimulus package. My own back-of-the-envelope calculations say that the package should be huge, on the order of $600 billion.
So the question becomes, will the Obama people dare to propose something on that scale?
Let’s hope that the answer to that question is yes, that the new administration will indeed be that daring. For we’re now in a situation where it would be very dangerous to give in to conventional notions of prudence.

Obama wins

Obama has won the US presidency with 52% of the total popular votes and at least 349 electoral votes. America has become bluer than ever

Election result

At this point the result is just being tallied and the latest I read is Pennsylvania and Ohio (the must win states for Mccain) have already gone to Obama. So is very likely the result is going to be like this

Hey! I think I have this feeling as well

Ny TimesNovember 1, 2008
Obama Is Up, and Fans Fear That Jinxes It
By MICHAEL POWELL
In the den of his home in New Hope, Pa., a liberal Democrat sits tap-tapping at his computer.
Jon Downs works the electoral vote maps on Yahoo like a spiritualist shaking his Ouija board. He calibrates and recalibrates: Give Senator John McCain Ohio, Missouri, even Florida. But Virginia and Pennsylvania, those go to Senator Barack Obama. And Vermont, Democrats can count on Vermont, right?

Right.

Almost always, Mr. Downs, 53, ends with Mr. Obama, the Democratic presidential nominee, ahead, which should please this confirmed liberal and profound Obama fan. But just as often he feels worried.

“Look, I have this sense of impending doom; we’ve had a couple of elections stolen already,” Mr. Downs said. “The only thing worse than losing is to think that you’re going to win and then lose.”
He considers that prospect and mutters, almost involuntarily, “Oh, God.”

To talk with left-leaning Democrats in New Hope, San Francisco or Miami Beach, to drill deep into their id, is to stand at the intersection of Liberal and High Anxiety.

Right now, more than a few are having a these-polls-are-too-good-to-be-true, we-still-could-lose-this-election moment. Their consuming and possibly over-caffeinated worry is that their prayers and nightly phone calls to undecided voters in Toledo, Ohio, notwithstanding, Mr. Obama might fall short on Election Day.

To walk on Broadway, on the Upper West Side of Manhattan, is to feel their pain. “Oh, God, I’m optimistic, but I can’t look at the polls,” said Patricia Kuhlman, 54, nervously tapping her Obama/Biden ’08 button. “I’m a PBS/NPR kind of person, and, O.K., I do look at some polls.”
Ms. Kuhlman shakes her head and says, “If he doesn’t get this, I’ll be crying so hard.”

A young woman, Shana Rosen, walks by. She is from Denver and said she had told her boyfriend that their love life was on hold while she sweated out Mr. Obama’s performance in Colorado. Ask Lucy Slurzberg, an Upper West Side psychotherapist, how many of her liberal patients speak of their electoral fears during their sessions, and she answers: “Oh, only about 90 percent of them.”
Certainly, national and swing state polls suggest that Democrats might allow themselves a deep breath or two. But liberals are not inclined to relax, given the circumstances of their last two defeats. Hanging chad, the Supreme Court decisions, and Florida and Ohio’s electoral problems: it is a lifetime of agita to staunch Democrats. The prospect of success now comes scented with dread.

Conservatives, it must be said, are not immune from the worry vapors. Therapists report that Republicans are hyperventilating too. “Wealthy Republicans are very anxious about taxes,” Jamie Wasserman, a psychotherapist with a practice on the Upper West Side and in Montclair, N.J., said of her patients. “They are not pretending to vote for the black man.”

And in Ohio, evangelical radio stations feature pastors praying for God to help voters ignore these “awful” polls and vote his will.

Many liberal Democrats watch MSNBC, but some say it sounds too much like comfort food. CNN serves its election coverage with a stiff little chaser of doubt for Democrats, and many liberals say CNN and NPR are their regular evening companions. If they really want to rub the sore tooth of worry, they dial over to the “Obama’s radical friend Bill Ayers” channel, otherwise known as Fox News.

“Mostly I flip between CNN and MSNBC, but I go to Fox if I want to get enraged,” Mr. Downs said.
Richard Schrader, a senior staff member for a national environmental organization, lives in Amherst, Mass., where politics start liberal and traipse left. He is fairly liberal, but his neighbors worry that he does not worry nearly enough. “They wake up, drink that pot of coffee and hit the polling Web sites,” Mr. Schrader said. “Too much good news has to be a lie.”

Recently he sat down with a friend who was sweating about Minnesota.
“Minnesota?” Mr. Schrader told his friend. “What, are you kidding me? Obama’s up 14 points there.”
The friend shook his head sadly. Take off seven points for hidden racial animus. Subtract another five for polling error. It is down to two points, and that is within the margin of error in sampling, and that could mean Mr. Obama might be behind.
“It was perversely impressive,” Mr. Schrader said.

Another friend worries that every undecided voter will break for Mr. McCain, the Republican nominee. Mr. Schrader said, “I told him: ‘O.K., that will be the first time that has ever happened in American history, but sure.’ ”

Pre-election rituals are much the same, from Oberlin, Ohio, to San Francisco. Many liberals describe waking up in the predawn, padding to the kitchen, firing up the coffeemaker and logging on before the children wake up. Lisa Serizawa, 44, of San Francisco leaps from site to site, from national newspapers to one in Ohio to another in Pennsylvania, then a blur of CNN, polling sites, and whatever.

“I just want reassurance; or is it a heads-up?” Ms. Serizawa said. “I’m cautiously, cautiously optimistic. Though I worry: Am I going to be hurt again?”
Liberals are found in almost every corner of the United States, as are their conservative counterparts. But the tribe’s denser concentrations are along the ideological Interstate that runs from Fort Lauderdale, Fla., to the Raleigh-Durham area of North Carolina, to the Adams Morgan section of Washington, to Montclair, to Park Slope in Brooklyn, to the Upper West Side of Manhattan, to Cambridge, Mass., Burlington, Vt., and Ann Arbor, Mich., and so on until it reaches the Pacific.

And from those redoubts, how can one gauge what is going on in the fairly broad expanses of this nation that are not 94.3 percent liberal Democrat? Unfamiliarity spikes the anxiety.
“We live in a bubble,” Ms. Serizawa said. “I drove to Monterey recently, and I saw my first McCain placard ever.”

Some East Coast liberals deal with the uncertainty by volunteering to call undecided voters, in hopes that a half-hour talk with a voter in Missouri will stop the mind from yapping.
“It makes them less worried to phone the middle of the country,” said Ms. Wasserman, the psychotherapist. “Those who are anxious are becoming more so; some spend an entire session going on about what they heard on CNN.”

Still, it is not as though election is a psychiatric condition. Recent years have offered a bad run for many Democrats. The United States is fighting wars on two fronts. The global economy has pitched into recession, and many say the economic elevator has yet to reach the basement.

For many liberals, the chance to elect Mr. Obama, who would be the nation’s first black president, gives the United States a second chance to walk across the stage of world history. (Which also makes the possibility of his loss unspeakably more depressing; given his present lead in every poll, many liberals fear that race will explain any defeat.)

“The last two elections have been so disappointing, so disturbing,” said Paula Guarnaccia, an assistant dean at the University of Vermont. “The idea that we could now elect this impressive man as president, I guess it heightens the anxiety.”

And yet, sometimes, a poll, or five, can tease out a smile.
Ellen Beth Bellet, a tax lawyer in Miami and an ardent liberal, confesses to being electorally obsessed. (She recently vacationed with a friend who threatened to machine gun the hotel television if Ms. Bellet did not shut off CNN.)

But of late a curious calm has descended. “I wrote an e-mail to a friend and said, ‘I’m afraid to put this in writing, but I’m really excited about the way this is going,’ ” Ms. Bellet said.
Within minutes, the phone rang; her friend was very worried about Mr. Obama’s prospects.

“Don’t say that!” the friend said. “No, no, no. What were you thinking? We can’t go there yet!”

Dems sketch Obama staff, Cabinet

Wow, we will find out if it's true after Nov 4th.

Dems sketch Obama staff, Cabinet
By: Mike Allen, Politico
October 31, 2008 09:09 PM EST

Republican insiders close to John McCain are spending much more time in the campaign’s final days trying to pull off an upset victory on Tuesday than focusing on who might be in a McCain Cabinet. But sources close to Barack Obama have quite specific ideas about his most likely choices for a wide array of top jobs.

The list is heavy on campaign heavyweights and Washington insiders, many of them from the administration of President Bill Clinton. So while surprises can be expected to crop up — especially on any Republican members of the Cabinet — many of the selections would likely be proven hands who would provoke little controversy. Obama has not communicated his final choice on any of these posts but plans to move very quickly if he is elected, according to the sources. They point to the political price that Clinton paid for dilly-dallying on his appointments and nomination.

Obama could name his White House chief of staff within a week of his election, advisers say. Obama would also likely make a rapid announcement on an economic team in an effort to show command of the most pressing issue that would face him on moving into the Oval Office on Jan. 20.

Larry Summers, who was Clinton’s last Treasury secretary before becoming president of Harvard, is considered a favorite for Treasury secretary for Obama.

See Also
A peek at a potential McCain cabinet

Obama transition planners have been working to line up a national security team, which would also likely be named sooner rather than later.

Here is the list of names being widely discussed in Democratic circles, compiled with the help of ABC’s Jonathan Karl and Politico’s Ben Smith. Some of the names are more likely than others, but all are being seriously considered by Obama advisers. Some of the sources would be involved in decision making, and some were making educated deductions.

In any case, ask a well-positioned Democrat, and this is what you’ll hear.


White House chief of staff: Former Sen. Tom Daschle (D-S.D.); Rep. Rahm Emanuel (D-Ill.); or dark horse candidate Bill Daley, Commerce secretary under President Bill Clinton and now an executive with JPMorgan Chase & Co.

Deputy chief of staff: Pete Rouse, chief of staff in Obama Senate office; Ron Klain, former chief of staff to Vice President Al Gore; longtime Obama adviser Valerie Jarrett; Jim Messina, campaign chief of staff

Senior adviser: David Plouffe, David Axelrod, Steve Hildebrand

Outside adviser: Abner Mikva

Ambassador at large on climate change: former Vice President Al Gore

National security adviser: Jim Steinberg, the deputy under Clinton; Gregory Craig, special counsel to Clinton; Susan Rice; retired Marine Gen. Anthony Zinni; Samantha Power of Harvard’s Kennedy School

White House counsel: Bob Bauer, campaign counsel; Chris Lu, Obama legislative director and member of transition staff; Heather Higginbottom, campaign senior policy strategist and longtime aide to Sen. John F. Kerry; Mike Strautmanis, congressional affairs for campaign and former chief counsel in Senate office

Chief of staff to the vice president: Tony Blinken, chief of staff, Senate Foreign Relations Committee (Biden is chairman) and senior campaign adviser for Biden; Stephanie Cutter; former Biden aides Mark Gittenstein, Alan Hoffman and Ted Kaufman.

Chief of staff to first lady Michelle Obama: Alyssa Mastromonaco, campaign director of scheduling and advance; Melissa Winter; Linda Douglass, senior spokeswoman for campaign

Counselor: Robert Gibbs; Anita Dunn; Valerie Jarrett; Jon Favreau

Communications director: Robert Gibbs; Dan Pfeiffer, who has that post in the campaign

Deputy Communications Director: Josh Earnest

Press secretary: Robert Gibbs, Linda Douglass, Bill Burton, Stephanie Cutter

Director of media affairs (regional and specialty media): Blake Zeff

Speechwriting director: Jon Favreau; Jeff Nussbaum

Deputy press secretary: Karen Dunn, currently Axelrod’s deputy

Press staff morale chief: Tommy Vietor

Assistant press secretary: Isaac Baker, Reid Cherlin, Ben LaBolt, Moira Mack, Hari Sevugan, Nick Shapiro

Press secretary to the first lady: Katie McCormick Lelyveld

White House economic adviser: Austan Goolsbee, senior policy adviser to campaign and University of Chicago economics professor; Jason Furman, director of economic policy for the campaign; Michael Froman, former Treasury chief of staff, Citigroup executive and Harvard Law classmate with Obama

Domestic policy adviser: Heather Higginbottom, Jason Furman, Neera Tanden

Director of scheduling: Marvin Nicholson

Personal aide: Reggie Love

Cabinet secretary: Christine Varney, who held that post under Clinton

White House staff secretary: Cassandra Butts

Director of legislative affairs: Chris Lu; Mike Strautmanis

Political director: Erik Smith

Defense secretary : Sen. Chuck Hagel (R-Neb.); Richard Danzig, Navy secretary under Clinton; John Hamre, president and CEO of CSIS and former deputy secretary of Defense; President Bush’s incumbent, Robert Gates — would be for at least a year so he wasn’t a lame duck.


Attorney general: Virginia Gov. Tim Kaine; Eric Holder, who was deputy AG under Clinton and is now with Covington & Burling and led Obama’s vice presidential search; Massachusetts Gov. Deval Patrick; Arizona Gov. Janet Napolitano.

Supreme Court nominee: Washington superlawyer Robert Barnett; legal scholar Cass Sunstein; Massachusetts Gov. Deval Patrick; 2nd U.S. Circuit Court of Appeals Judge Sonia Sotomayor of New York; Elena Kagan, dean of Harvard Law School. Consensus is it would most likely be a woman.

Secretary of State: New Mexico Gov. Bill Richardson; Sen. John F. Kerry (D-Mass.); Sen. Richard Lugar (R-Ind.)

Deputy secretary of state: Gregory Craig

Director of State Department policy planning (internal think tank): Samantha Power

U.S. ambassador to the United Nations: Susan Rice, senior campaign national security adviser and State Department and National Security Council official under Clinton; Caroline Kennedy

Treasury secretary: former Clinton treasury secretaries Larry Summers and Robert Rubin; FDIC Chairman Sheila C. Blair; New York Fed President Timothy Geithner, former Treasury under secretary and Assistant Secretary; former Federal Reserve hairman Paul Volcker.

Deputy Treasury secretary: Jake Siewert.

Secretary of Health and Human Services: Tom Daschle; Democratic National Committee Chairman Howard Dean, a physician; John Kitzhaber, medical doctor and former Oregon governor.

Health care czar in White House: Tom Daschle.

Education secretary: David Boren, president of the University of Oklahoma and former U.S. senator and former Sooner State governor; Former New Jersey Gov. Tom Kean (R), who was chairman of the 9/11 commission; Rep. George Miller (D-Calif.)

Environmental Protection Agency administrator: Former Sen. Lincoln Chafee (R-R.I.); Kathleen McGinty, former head of the Pennsylvania Environmental Protection Agency

Commerce secretary: Penny Pritzker; Kansas Gov. Kathleen Sebelius; Sen. Olympia Snowe (R-Maine).

Homeland Security secretary: Former Sen. Gary Hart (D-Col.); William Bratton, Los Angeles police chief and former New York police commissioner; former Rep. Tim Roemer (D-Ind.), a member of the 9/11 Commission; Rep. Jane Harman (D-Calif.); Sen. Susan Collins (R-Maine)

CIA director: Former Rep. Tim Roemer (D-Ind.); Rep. Jane Harman (D-Calif.)

Director of National Intelligence: Rep. Jane Harman (D-Calif.)

Secretary of Housing and Urban Development: Longtime Obama adviser Valerie Jarrett; Rep. Jesse Jackson Jr. (D-Ill.)

Secretary of Veterans Affairs: Former Sen. Max Cleland (D-Ga.); Tammy Duckworth, the director of Illinois Veterans’ Affairs, Iraq veteran and former Democratic House candidate; Bush’s incumbent, James Peake

Secretary of the Interior: Rep. Jay Inslee (D-Wash.); Robert F. Kennedy Jr.

Secretary of Energy: California Gov. Arnold Schwarzenegger (R); Sen. Jeff Bingaman (D-N.M.)

Secretary of Transportation: Rep. Earl Blumenauer (D-Ore.); Rep. Jim Oberstar (D-Minn.)

Secretary of Labor: Former Rep. Richard Gephardt (D-Mo.); Andrew Stern, president of the Service Employees International Union; Kay Hagan of North Carolina (if she loses her challenge to U.S. Sen. Elizabeth Dole); Jeanne Shaheen, former New Hampshire governor (if she loses her challenge to U.S. Sen. John Sununu)

Secretary of Agriculture: Former Iowa Gov. Tom Vilsack; Rep. Collin Peterson (D-Minn.)

Director, Office of National Drug Control Policy: William Bratton

Director, Council for Faith-Based and Neighborhood Partnerships (Obama's renamed faith-based office): Josh DuBois, campaign's director of religious affairs